The most common ways that a taxpayer becomes aware that their tax account has been a victim of identity theft are:
1. The taxpayer attempts to file a return electronically but the IRS rejects the return indicating that someone else has filed a return using the same identification number of the filer or a dependent.
2. An IRS notice that indicates more than one return has been filed for a single account.
3. An IRS bill for additional tax, an unknown refund offset , or collection action.
4. The IRS asks for confirmation of information on a return that was not filed by the taxpayer.
5. A notice is received that reflects wages earned from an employer the taxpayer has never worked for.
6. Some kind of compliance action has been taken against the taxpayer for a period which the taxpayer never filed a return nor received a refund.
Businesses are not immune either to identity theft, look for unusual notices from the IRS or other state or local agencies concerning:
1. A closed business.
2. Individuals who were never employees.
3. Unexpected unpaid taxes.
4. Original returns accepted as an amended return.
5. A business that has been “administratively terminated” by the secretary of state for no activity or failure to pay registration fees suddenly comes back to life and notices are received from the SOS.
Things that a taxpayer can do if they are the victim of identity theft:
1. Submit Form 14039, Identity Theft Affidavit, to the IRS as quickly as possible.
2. Respond to any IRS notice or letter immediately.
3. Continue to file and pay taxes even if by paper.
4. Visit www.irs.gov/identitytheft to review all focused identity theft information the IRS provides.
The IRS actions will most likely be:
1. Confirm that the identity theft victim has filed Form 14039.
2. Do a coding of the taxpayer account file to indicate there has been a receipt of identity theft documentation.
3. Reconcile the account to reflect any valid return information.
4. Place an identity theft indicator on the account, if the IRS deems that step to be necessary.
5. Place a hold on the account during the investigation. Information exchange is limited during this phase and the taxpayer will likely be frustrated with an inability to have a conversation with the IRS regarding their account. From the IRS’s perspective, while attempting to determine the real taxpayer, they will choose to err on the side of caution.
6. Taxpayer will be at the mercy of the IRS until they can satisfy themselves as to proper identity. The policy of the Identity Protection Specialized Unit is to stop the flow of information until all parties have been identified.
If a taxpayer suspects identity theft it may be best to contact their tax preparer, if they have one, to determine the best steps to take. It may be better to do some information gathering like getting a transcript of their account to identify if any discrepancies exist before submitting Form 14039.
REMEMBER the IRS does not call the taxpayer first! That is not how they operate. The first contact from the IRS is always a letter or notice. If you receive a call from someone out of the blue telling you they are the IRS it is bogus and a phishing call by someone trying to get your personal information.
Many have forgotten or don’t know about the IRS first-time penalty waiver program (FTA). This program was introduced more than 15 years ago but still remains a little known method of getting assessed penalties abated for a first-time non-compliant taxpayer for a single tax period. Abatement Penalty Waiver.